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At a glance

On June 3, the FASB issued guidance providing a one-year deferral of the effective dates for the revenue and leases standards for certain nonpublic companies and not-for-profit entities. The effective dates for the credit losses, goodwill impairment, long-duration insurance contracts, leases, and hedging standards were deferred for certain entities in November 2019. This In depth was updated on June 3 to incorporate the FASB’s latest guidance.
This In depth also explains the FASB’s new “two bucket” philosophy issued last November regarding effective dates and addresses how to apply it in IPOs and other situations.


FASB’s new effective date guidance
On June 3, the FASB issued guidance (ASU 2020-05) that defers the effective dates of the revenue and leases standards (ASC 606 and ASC 842, respectively) for entities that have not yet issued financial statements adopting the standards. Importantly, the revenue standard deferral is available to all nonpublic companies, an expansion of the deferral that was proposed in April, which would only have applied to franchisors. Early adoption is still permitted. The deferrals of both standards are intended to provide relief to nonpublic companies and not-for-profit entities that have had their implementation efforts delayed by the COVID-19 pandemic.
The effective dates for the credit losses, goodwill impairment, insurance, hedging, and leases standards were deferred last November to provide implementation relief to smaller and private companies in response to feedback from stakeholders that the challenges of adopting and implementing major standards are often magnified for smaller and private companies.
The standards impacted by the deferred effective dates include:
  • Revenue from Contracts with Customers (ASC 606) - deferred in June 2020
  • Leases (ASC 842) - deferred in November 2019, additional deferral granted in June 2020
  • Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12) - deferred in November 2019
  • Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326) - deferred in November 2019
  • Intangibles: Simplifying the Test for Goodwill Impairment (ASU 2017-04) - deferred in November 2019
  • Insurance: Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12) - deferred in November 2019
The November 2019 guidance (ASU 2019-09 and ASU 2019-10) also created a new “two bucket” philosophy for the credit losses, goodwill impairment, and long-duration insurance contracts standards to stagger the effective dates between (1) public business entities (PBEs) that are SEC filers, as defined by the FASB’s Master Glossary, other than smaller reporting companies (SRCs, as defined by the SEC) and (2) all other entities. The entities in bucket two include SRCs, PBEs that are not SEC filers, private companies, not-for-profit entities, and employee benefit plans that are not required to file or furnish financial statements with the SEC. Entities in bucket one would adopt new accounting standards first, followed at least two years later by entities in bucket two, with early adoption permitted.
The FASB is considering how effective dates may be established for future major standards using this philosophy but will make that determination on a standard-by-standard basis going forward.
Figure 1 shows the effective dates for each standard.
Figure 1
Applicable for:
New effective date:
Fiscal years beginning after
Interim periods
Revenue (updated)
  • Public business entities
  • Not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter (OTC) market
  • Employee benefit plans that file or furnish financial statements with or to the SEC
December 15, 2017
(no change)
Same year
All other entities that have not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 reflecting adoption of ASC 606
December 15, 2019
Following year
Leases (updated)
  • Public business entities
  • Not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an OTC market (except for those entities that have not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 reflecting adoption of ASC 842)
  • Employee benefit plans that file or furnish financial statements with or to the SEC
December 15, 2018
(no change)
Same year
Not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an OTC market that have not yet issued financial statements or made financial statements available for issuance as of June 3, 2020 reflecting adoption of ASC 842
December 15, 2019
Same year
All other entities not included above
December 15, 2021
Following year
Hedging
Public business entities
December 15, 2018
(no change)
Same year
All other entities
December 15, 2020
Following year
Credit losses
Public business entities that are SEC filers, excluding Smaller Reporting Companies
December 15, 2019
(no change)
Same year
All other entities
December 15, 2022
Same year
Goodwill impairment
Public business entities that are SEC filers, excluding Smaller Reporting Companies
December 15, 2019
(no change)
Same year
All other entities
December 15, 2022
Same year
Long-duration insurance contracts
Public business entities that are SEC filers, excluding Smaller Reporting Companies
December 15, 2021
Same year
All other entities
December 15, 2023
Following year
Public not-for-profits adopting the leases standard
Not-for-profit entities that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an OTC market (public NFPs) typically consist of higher education institutions and healthcare organizations. Public NFPs are often required to post quarterly financial information or quarterly financial statements to the Electronic Municipal Market Access (EMMA) system, which is governed by the SEC and the Municipal Securities Rulemaking Board. The content and timing of these postings are negotiated between the public NFP and the underwriter and vary from organization to organization. The quarterly information posted on EMMA may be GAAP-compliant interim financial statements prepared in accordance with ASC 270, Interim Reporting, or, more often, only quarterly financial information (e.g., condensed income statement and balance sheet).
At its May 20, 2020 meeting, the FASB clarified that a public NFP is eligible for the deferred effective date for the leases standard (i.e., fiscal years beginning after December 15, 2019 and interim periods within those fiscal years) if it has posted only interim financial information on EMMA reflecting adoption of the leases guidance. A public NFP is not eligible for the deferral if it has issued GAAP-compliant interim financial statements reflecting adoption of the leases guidance in accordance with ASC 270, Interim Reporting, (including all required statements and footnote disclosures).
Interaction with LIBOR reform
Non-PBEs considering availing themselves of the hedging deferral should consider that they will not be able to benefit from all optional expedients for hedge accounting offered in ASU 2020-04, Reference Rate Reform (Topic 848). For more information, refer to our accounting and reporting guide, Reference rate reform.
Smaller reporting companies
Which bucket a company falls in for credit losses, goodwill impairment, and long-duration insurance contracts will be based on whether it is an SRC in its most recent SRC determination before November 15, 2019, which is the date the FASB issued the deferrals for these standards (ASU 2019-09 and ASU 2019-10). Since SRC status is generally determined on the last business day of an issuer's most recently completed second fiscal quarter, the most recent determination date would be June 28, 2019 for calendar-year-end companies. An SEC filer that was not an SRC based on its most recent SRC determination before November 15, 2019 would be required to adopt the credit losses, goodwill impairment, and insurance  standards on the earlier effective date of bucket one entities, unless it qualified as an EGC and had elected to adopt new standards on the timeline afforded a nonpublic company.
Including SEC filers that are SRCs in bucket two (and, thus, affording these entities a deferred effective date) eliminates a difference that currently exists between the implementation time afforded to emerging growth companies (EGCs) and SRCs. Ordinarily, a company preparing an SEC filing (including a private company filing a Form S-1) must apply all accounting standards as if it had always been a public company. However, as part of the relief provided to EGCs under the JOBS Act, an EGC may elect to adopt new standards on the timeline afforded a nonpublic company. This election must be applied to all new accounting standards. The FASB's new two bucket framework grants similar implementation relief to SRCs by putting SRCs in bucket two.
For more SEC guidance on SRC status, see A Small Entity Compliance Guide for Issuers.
Companies in the process of an IPO
A private company that files a Form S-1 in preparation for an initial public offering (IPO) is not a "PBE that is an SEC filer" (and, therefore, would be in bucket two under the FASB's new effective date philosophy) until its registration statement becomes effective (at which point, it would be in bucket one). However, at the 2019 AICPA Conference on Current SEC & PCAOB Developments, a member of the SEC staff stated that it would not object to a company that is an SRC in its Form S-1 filing adopting the standards using the bucket two effective dates, even after its registration statement becomes effective. This includes registration statements filed publicly and registration statements submitted confidentially seeking nonpublic review by the SEC staff.
If a private company was not an SRC in its Form S-1 filing and did not qualify as an EGC, it would be required to adopt the standards using the bucket one effective dates once its registration statement becomes effective. For this reason, it is common for a company in the IPO process to adopt accounting standards using the bucket one effective dates in its Form S-1, unless the company is eligible to be an SRC or EGC.
Effective date FAQs
These questions and answers address application of the FASB's new effective dates guidance.
Question
Answer
1. Gaining SRC status after November 15, 2019
If a calendar year-end SEC filer was not an SRC as of June 28, 2019 (its most recent filer status determination before the date the ASUs were issued, November 15, 2019) but becomes an SRC after November 15, 2019, what bucket would the company fall into when determining the effective date of the credit losses, goodwill impairment, and long-duration insurance contracts standards?
Bucket one. The company was not an SRC as of June 28, 2019 (its most recent filer status determination before the date the ASUs were issued, November 15, 2019). Therefore, it would still be in bucket one even if it subsequently becomes an SRC.
2. Losing SRC status after November 15, 2019
If a calendar year-end SEC filer that qualifies as an SRC as of the end of its second quarter (June 28, 2019) loses its SRC status after November 15, 2019, the date the ASUs were issued, what bucket would the company fall into when determining the effective date of the credit losses, goodwill impairment, and long-duration insurance contracts standards?
Bucket two. The FASB noted that the SRC determination is a one-time assessment, and decided against requiring an SEC filer SRC that loses its SRC status after November 15, 2019 to adopt the standards using the earlier effective dates.
3. Pre-IPO
A calendar year-end private company files a Form S-1 in early 2020 in preparation for an IPO and becomes a public company in the second quarter of 2020 when its registration statement becomes effective. It is not an SRC or EGC. Would the company need to adopt the credit losses and goodwill impairment standards (which are effective in January 2020 for calendar-year-end PBEs that are SEC filers, excluding SRCs) in its Form S-1?
No. The company would not be required to adopt the credit losses and goodwill impairment standards in its Form S-1 because a private company that files an S-1 in preparation for an IPO is not an SEC filer (although it would become one when its registration statement becomes effective). Therefore, it cannot be a PBE that is an SEC filer and would not be required to adopt the standards on the bucket one timeline in its Form S-1 in 2020. However, it is leading practice for a company in this situation to adopt these standards in its Form S-1 using the earlier effective dates.
4. Post-IPO (2020)
Assume the same facts as Question 3. Would the company need to adopt the credit losses and goodwill impairment standards in its 2020 Form 10-K and second quarter 2020 Form 10-Q?
Yes. Since the company is not an SRC, it would need to adopt the credit losses and goodwill impairment standards as of January 1, 2020 (bucket one timeline) in both its 2020 Form 10-K and its second quarter 2020 Form 10-Q. Even though it is first adopting in the second quarter of 2020, the company would need to push back the adoption to January 1, 2020 in the second quarter 2020 Form 10-Q and the 2020 Form 10-K.
5. Post-IPO (2020) - SRC
Assume the same facts as Questions 3, except that the private company is an SRC in its Form S-1 filing. Would the company need to adopt the credit losses and goodwill impairment standards in its 2020 Form 10-K and second quarter 2020 Form 10-Q?
No. The company would not be required to adopt the credit losses and goodwill impairment standards until January 2023, although early adoption is permitted. At the 2019 AICPA Conference on Current SEC & PCAOB Developments, a member of the SEC staff stated that it would not object to a company that is an SRC in its Form S-1 filing adopting the credit losses and goodwill impairment standards using the bucket two effective dates, even after its registration statement becomes effective.
6. S-X Rules 3-05, 3-09, 3-10
Into what bucket would a company that is a PBE solely because its financial statements are included in another entity's SEC filing due to the requirements of S-X Rules 3-05, 3-09, or 3-10 (i.e., businesses acquired or to be acquired, equity method investments, and guarantors) fall?
Bucket two. Although entities whose financial statements are included in another entity's SEC filing due to S-X Rules 3-05, 3-09, and 3-10 are PBEs, that does not, by itself, make them SEC filers and, thus, they are not bucket one (assuming that they don't otherwise qualify as SEC filers).
7. Losing EGC status (2020)
A calendar year-end EGC elects to follow the transition guidance for nonpublic entities and plans to adopt the new credit losses, goodwill impairment, and long-duration insurance contracts standards using bucket two adoption dates. If the registrant loses its EGC status effective December 31, 2020, as of what date is the company required to adopt these standards, assuming the company was not an SRC as of June 28, 2019 (its most recent filer status determination before ASU 2019-09 and ASU 2019-10 were issued on November 15, 2019)?
SEC Financial Reporting Manual 10230.1 indicates that an EGC that loses its status after it otherwise would have had to adopt a standard absent the extended private company transition afforded EGCs generally has to adopt the standard in its next filing after losing status. In this case, the registrant should reflect the adoption of the new credit losses and goodwill impairment standards as of January 1, 2020 in its December 31, 2020 annual filing because it is no longer an EGC and is in bucket one. The long-duration insurance contracts standard would be effective for this company in January 2022 on the bucket one timeline.
In addition to adopting the credit losses and goodwill impairment standards in the 2020 annual financial statements, the registrant has to reflect these standards in its 2020 quarterly financial information presented in its 2020 Form 10-K. Clear and transparent disclosures, as required by S-K 302(a)(2), should be included to indicate that the 2020 quarterly information presented in the 2020 Form 10-K differs from the 2020 quarterly information presented in the company's 2020 Form 10-Qs. In addition, the 2020 comparative quarterly information presented as part of the company's 2021 Form 10-Qs would need to be revised to reflect the application of the new standards.
8. Losing EGC status (2021)
Assume the same facts as Question 7 except that the registrant loses its EGC status effective December 31, 2021. As of what date is the company required to reflect the adoption of the credit losses, goodwill impairment, and long-duration insurance contracts standards?
The registrant should reflect the adoption of the new credit losses and goodwill impairment standards as of January 1, 2021 in its December 31, 2021 annual filing because it is no longer an EGC and is in bucket one. The long-duration insurance contracts standard would be effective for this registrant in January 2022 on the bucket one timeline. We understand that the SEC will not object to a registrant that loses its EGC status in 2021 adopting the credit losses and goodwill impairment standards as of the beginning of that year (January 1, 2021), rather than recasting the 2020 comparative financial statements in the Form 10-K. Similarly, we understand that the SEC will not object to a registrant that loses its EGC status in 2023 adopting the long-duration insurance contracts standard as of the beginning of that year (January 1, 2023), rather than recasting the 2022 comparative financial statements in the Form 10-K.
In addition to adopting the credit losses and goodwill impairment standards in the 2021 annual financial statements, the registrant has to reflect these standards in its 2021 quarterly financial information presented in its 2021 Form 10-K. Clear and transparent disclosures, as required by S-K 302(a)(2), should be included to indicate that the 2021 quarterly information presented in the 2021 Form 10-K differs from the 2021 quarterly information presented in the registrant's 2021 Form 10-Qs. In addition, the 2021 comparative quarterly information presented as part of the company's 2022 Form 10-Qs would need to be revised to reflect the application of the new standards.

To have a deeper discussion, contact:
David Schmid
Partner
Email: david.schmid@pwc.com
Maria Constantinou
Director
Email: maria.constantinou@pwc.com
Ashleigh Pierce
Director
Email: ashleigh.pierce@pwc.com

1Section 4014 of the CARES Act includes an optional (but temporary) deferral of the effective date of the credit losses standard for insured depository institutions, bank holding companies, and their affiliates. A registrant would only be eligible to apply this provision if it meets the criteria specified in the CARES Act, which is a legal determination. The relief period begins on March 27, 2020 and ends on the earlier of (1) the date the national emergency related to COVID-19 ends or (2) December 31, 2020. For more information, refer to our In depth, CARES Act: Accounting for the stimulus.

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